A.16 Lessons learned from the business collaboration agreements in Singapore

TABLE A.16 Lessons learned from the business collaboration agreements in Singapore

BEST PRACTICES

• The reform incorporated valuable existing assets from incumbent operators (depots and fleet). [planning risk] [incumbent risk] [operational risk] • The reform included transition mechanisms, remunerating incumbents for their fleet while it was replaced by new vehicles owned by the authority. [planning risk] [incumbent risk] [operational risk] • Given the shortage of land, making the incumbent depots available to bidders removed a huge barrier to entry. [planning risk] [incumbent risk] [operational risk] • The model allowed for flexibility in changing the level of service and adapting to changing demand. [operational risk] • The model allowed for flexibility in incorporating new electronic buses. [technology risk] • The reform increased the number of buses and improved the level of service. [planning risk] [design risk] [operational risk] • The short-term duration of the operation contract allows for more competition for the market. [planning risk] [operational risk] [technology risk] • The automatic fee adjustment mechanism reduces the perceived risk by the operator. [planning risk]

Source: World Bank. AREAS FOR IMPROVEMENT

• Operators receive a fixed payment and are compensated by operational costs, which produces no incentives to reduce costs or limit supply. [planning risk] [operation risk] • The Land Transit Authority (LTA) requires a large capacity to monitor operational costs and compliance with service standards, and the demand level is consistent with fare collection. [planning risk] [operation risk] [institutional risk] [evasion and cash management risk] • There is no clarity on how overhaul maintenance will be done or on the capacity of the LTA to undertake it. [planning risk] [operation risk] [institutional risk]

by the government. LTA retains all fare revenue that the operators collect. LTA determines the level of services to operate the routes, and the number of vehicles allocated to a given route. LTA acquires the fleet and owns the buses, leasing them to the operators. Operators are responsible for routine maintenance of the buses and on-board equipment as part of their contracts. They are also responsible for maintaining the bus depots assigned to them. Operators also provide user information as well as customer service (lost and found, grievance redressal). Operating contract terms range from 2 to 10 years.

To provide the right incentives for operators, which are entitled to fixed payments, the remuneration includes performance payments of up to 10 percent. If the operator does not meet standards, up to 10 percent of its fee will be deducted. Performance indicators are linked to reliability and waiting times, the punctuality of first and last dispatches, and the maintenance of buses, depots, and equipment.

The model has led to improved service quality. It has allowed the LTA to adapt the fleet to changes in demand, making urban bus services responsive to changes in ridership and commuter needs. It has increased competition in the industry and raised service levels for commuters. Table A.16 presents the lessons learned from Singapore’s business collaboration agreements.

NOTES

1. This improvement surpassed the municipality’s goal of a 25 percent reduction. 2. For the 10-year exchange rate, see https://www.xe.com/currencycharts/?from =USD&to=Pen&view=10y. 3. US$1 = Mex$18.99. 4. Bono de chatarrización, a grant that allowed operators to cover the down payment for the new fleet. 5. Syndicat Mixte des Transports pour le Rhône et l’Agglomération Lyonnaise. 6. T Sh 364,602,325,731 converted to US dollars (US$1 = T Sh 2,179.98).

7. no measurable results are available from reliable sources. however, sources seem to show a consensus about positive results in terms of increased quality of service and reliability. 8. Compilation of data and information by Leonardo Canon Rubiano (transportation specialist), 2019.

REFERENCES

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Options for the BRT Corridors and Implementation Support.” World Bank, Washington, DC. eCLAC (economic Commission for Latin America and the Caribbean). 2017. Implementation of the Transantiago System in Chile and Its Impact on the Transport Sector Labor Market.

Santiago: eCLAC. https://repositorio.cepal.org/bitstream/handle/11362/43409 /S1701288_en.pdf. El Comercio. 2018. “70 autobuses serán parte de la flota del Trolebús y la ecovía.” El Comercio,

August 20. https://www.elcomercio.com/actualidad/autobuses-flota-trolebus-ecovía -quito.html. Gorham, R., and K. Sethi. 2017. “Urban Mobility in haiti: A Diagnostic.” World Bank,

Washington, DC. Guerrero, A., and L. Scholl. 2015. “Comparative Case Studies of Three IDB-Supported Urban

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Washington, DC. hidalgo, D., P. Custodio, and P. Graftieaux. 2007. “A Critical Look at Major Bus Improvements in Latin America and Asia: Case Study Metrobús Q.” World Bank, Washington, DC. http:// siteresources.worldbank.org/InTTRAnSPORT/Resources/336291-1153409213417/Case

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Municipality of Zaragoza. Ramalho, S. 2015. “Rio de Janeiro tem o terceiro pior trânsito entre 146 cidades do mundo, diz levantamento.” O Globo, March 31. https://oglobo.globo.com/rio/rio-de-janeiro-tem-terceiro -pior-transito-entre-146-cidades-do-mundo-diz-levantamento-15742464.

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Project.” World Bank, Washington, DC.

APPENDIX B

Assessing the Value for Money of a Public-Private Partnership

The standard method for examining the hypothesis of whether to use a public-private partnership (PPP) is to consider the possible value for money (VfM). VfM has various definitions (Flor et al. 2015). According to the United Kingdom’s “VfM Assessment Guidance,” “Value for Money is defined as the optimum combination of whole-of-life cost and quality of the good or service to meet user’s requirement” (Her Majesty’s Treasury 2006). The World Bank’s policy on procurement states, “The principle of value for money means the effective, efficient, and economic use of resources, which requires an evaluation of relevant costs and benefits, along with an assessment of risks, and non-price attributes and/or life cycle costs, as appropriate” (World Bank 2016).

A VfM analysis usually consists of an economic analysis that compares the expected social return from a solution delivered through a PPP with the public sector comparator (PSC). The PSC estimates the hypothetical risk-adjusted cost if a project were to be financed, owned, and implemented by government (Kerali 2012). The analysis assesses whether a private investment proposal offers VfM in comparison with the most efficient form of public procurement. An analysis of VfM proceeds in three main stages:

• Risk analysis. The analytical framework supports this stage. The analysis helps decision-makers evaluate many different aspects of a project, including (a) which party is best suited to hold risks, (b) which risk-sharing structure creates more value for the government and society, and (c) the effective cost and value of each risk. • Quantitative analysis. For the purposes of analyzing VfM, the planning authority must estimate the total impact of a given risk and the probability that this risk will materialize. Quantitative analysis requires enough good-quality data to conduct a comprehensive analysis of the different components of the PSC and the PPP. In some models, a Monte Carlo simulation exercise is done through Excel’s Cristal Ball add-on. This exercise simulates a vast amount of possible scenarios given the probabilities of occurrence of different risks and their impacts. It helps to estimate the probability that the decision to implement a PPP will generate VfM. Not only does a VfM analysis explain how much more (or less) value a PPP will bring to the deal, but it also determines the probability of the PPP being the best option. • Qualitative analysis. Usually less prescriptive than the quantitative analysis, the qualitative analysis is conducted after completing the quantitative analysis. It consists of interviews with the parties involved in the project analysis,

which gives them a chance to explain whether the value is likely to create VfM as a PPP or as a public work.

VfM requires comparing the private provision of the good or service with the alternative of public provision, which is the PSC. Therefore, the definition of the PSC is critical, as it sets the bar for assessing the appropriateness of private provision. The PSC traditionally consists of three components:

• Raw PSC. Base costs (the capital and operating expenditures required to produce the project) are considered in the same period as the PPP proposal was first made. To calculate these costs, the analysis must identify them and classify them either as direct (that is, they can be traced to a particular service or facility and categorized in terms of capital, maintenance, or operations) or as indirect (overhead costs). In addition, it considers third parties’ revenue, which is deducted from operating costs. • Competitive neutrality. This component consists of removing the competitive advantages or disadvantages that the hypothetical public agency pursuing the project could have with respect to the private company in a PPP (taxes, rates, and other transfers that are neutral from the point of view of society). • Risk adjustment and valuation. Value = value of consequence * probability of occurrence + contingency factor. The risk adjustment must differentiate between transferable risk (from the procuring agency to a private consortium) and retained risk (typically the same in a PPP and a PSC).

Other factors must also be taken into consideration, as VfM alone is not the final solution to this matter. A fiscal impact analysis, using tools such as the Public Fiscal risk Assessment Model, may help to explain how much a government could afford in terms of long-term payments, according to its fiscal space and outstanding debt capacity. Another technique that can shed light on the issue is the pricing of contingent liabilities. Contingent liabilities are often the cause of a collapse or at least lengthy renegotiations on many PPP projects. A solid economic-benefit analysis can help with understanding all of the socioeconomic benefits of a project, and this understanding has an impact on the amount of payments a given government may provide to its citizens. Finally, a capacity assessment is crucial to ensure that the authority can properly manage the contracts in the long term.

REFERENCES

Flor, l., B. Weaver, M. Pérez, and I. Portabales. 2015. “Exploring ‘Value for Money’ Analysis in low-Income Countries: lessons learned from a PPP Project in Tanzania.” World Bank,

Washington, DC. Her Majesty’s Treasury. 2006. “Value for Money Assessment Guidance.” National Archives, london. https://webarchive.nationalarchives.gov.uk/20130123214702/http://www .hm-treasury.gov.uk/d/vfm_assessmentguidance061006opt.pdf. Kerali, H. 2012. “Public Sector Comparator for Highway PPP Projects.” World Bank, Washington,

DC.

World Bank. 2016. “Bank Policy: Procurement in IPF and Other Operational Procurement

Matters.” World Bank, Washington, DC.

PRACTICAL TOOLS AND FURTHER READING

Benitez, Daniel. 2013. “recent Developments in VfM Analysis in latin America.” World Bank,

Washington, DC. https://ppiaf.org/documents/3197/download. Her Majesty’s Treasury. 2013. “Value for Money Assessment for Using Private Finance.” National

Archives, london, January 2. https://webarchive.nationalarchives.gov.uk/20130102211853 /http://www.hm-treasury.gov.uk/infrastructure_ppp_vfm.htm. Martin, H. 2013. “Value-for-Money Analysis—Practices and Challenges; How Governments

Choose When to Use PPP to Deliver Public Infrastructure and Services.” World Bank Group,

Washington, DC. http://documents.worldbank.org/curated/en/724231468331050325/Value -for-money-analysis-practices-and-challenges-how-governments-choose-when-to-use-PPP -to-deliver-public-infrastructure-and-services. National Archives. 2011. “PFI Value for Money Quantitative Assessment.” Evaluation

Spreadsheet (Excel 3MB), National Archives, london, December 20. https://webarchive. nationalarchives.gov.uk/20130102211853/http://www.hm-treasury.gov.uk /d/vfm_qe_spreadsheet_122011.xls. World Bank Group. n.d. “United Kingdom—Value for Money Assessment for Using Private

Finance.” World Bank, Washington, DC. https://ppp.worldbank.org/public-private -partnership/library/united-kingdom-value-money-assessment-using-private-finance.